U.S. Agency Revenue Jumps 8.8% to $28.2 Billion

Sea Change: Internet Drives Marketing-Services Gains; JWT Top U.S. Agency Brand; Dentsu Leads World Chart

Published: April 30, 2007

CHICAGO (AdAge.com) -- Revenue for U.S. marketing-communications agencies jumped 8.8% to $28.2 billion in 2006, the strongest growth since ad spending began to rebound from recession in 2002.

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The hot growth came from marketing services, fueled by digital. Traditional ad agencies, grappling with a shift from old media, saw tepid growth.

Agency revenue from marketing services rocketed 13.1% to $15.1 billion, the strongest growth since the recession, according to the 63rd annual Advertising Age Agency Report. Agency revenue from traditional advertising and media rose just 4.2% to $13.1 billion, the weakest growth since 2003, the first full year of the advertising recovery.

In 2006, U.S. agencies collectively generated less than half of their revenue -- 46.4% -- from traditional advertising and media planning/buying, with the rest coming from a range of marketing services including digital/interactive, direct marketing, sales promotion, health care and PR. Marketing services grabbed 53.6% of U.S. marketing-communications agency revenue. That was up from 51.5% in 2005, the first year that marketing services topped advertising/media.

Impact of interactive
What's behind the change? No surprise: the internet. U.S. interactive-agency revenue rocketed 23.1%, driving the increase in marketing services. But digital is more than interactive shops; it's an integral part of marketing services from direct to promotion. "Interactive is huge," says Chris Weil, chairman-CEO of Momentum Worldwide, a promotions agency owned by Interpublic Group of Cos. "If anybody in marketing is not a big part of interactive, they won't be around much longer."

Traditional advertising certainly is under pressure. The 4.2% U.S. revenue growth for traditional advertising/media agencies roughly tracks with ad spending: U.S. measured spending on traditional media last year grew a soft 3.2%, according to TNS Media Intelligence data.

Among key points from the Agency Report:
Dentsu ranked as world's largest consolidated agency network, with 2006 revenue of nearly $2.5 billion. The consolidated-network ranking is new this year, and adds up the revenue of ad agencies and allied marketing-services ventures, excluding media, health care, market research and public relations.
WPP Group's JWT was the No. 1 U.S. agency with estimated revenue of $445 million from traditional advertising, followed closely by BBDO and McCann. The trio has always been near the top. In the first Agency Report, in 1945, the three shops ranked Nos. 1, 6 and 4. JWT's estimated 1944 U.S. revenue: $9 million, or $101 million after adjusting for inflation.
Omnicom's Rapp Collins Worldwide ranks as the top marketing-services agency.
AQuantive's Avenue A/Razorfish was the No. 1 interactive agency. AQuantive ranked as the ninth-largest marketing organization, becoming the first interactive operation to crack the top 10.
Omnicom, WPP, Interpublic and Publicis accounted for 52.6% of revenue for U.S. marketing-communications services. The Big Four's combined U.S. revenue was split evenly between advertising/media (50.8%) and marketing services (49.2%).
Reliance on traditional advertising varies widely by company. Omnicom last year generated just 42.8% of worldwide revenue from traditional advertising/media, lowest among the top four; Publicis drew 70% of revenue from traditional advertising/media, highest among the four.
The $1.3 billion purchase of Digitas by Publicis was the largest acquisition over the past year by a marketing organization, but it was far from the only digital deal. Since January 2006, the Big Four have bought, or made investments in, more than 20 interactive ventures.
The Big Four last year kept the same worldwide-revenue rankings in place since 2003: Omnicom, WPP, Interpublic and Publicis.

Interpublic was No. 1 as recently as 2000. It fell to second, behind Omnicom, in 2001, and third, behind WPP, in 2003. Interpublic could slump to No. 4 in 2007; Publicis, with its faster organic growth and the Digitas acquisition, is coming up fast. Interpublic's position will depend in part on how much progress it makes this year in its stated goal to achieve organic revenue growth "comparable to industry peers ... by 2008."